The State of Canadian FinTech in 2016

In 2015, the financial technology or “fintech” revolution took flight in Canada. From coast to coast, tech-enabled upstarts are working hard to improve the financial well-being of everyday Canadians. Fintech companies achieve this goal by leveraging technology to make things faster, design a better customer experience, all while working to charge less than the big banks. See this infographic to view the various segments of Canadian banking that fintech players have begun to address.

Why is fintech an important subject for Canadians? Technology is not only making banking more convenient for consumers; it is encouraging upstarts to look at what the banks do, and try to do it better. Historically options have been limited by the domination of Canada’s largest institutions. Canada has one of the most profitable financial industries in the world, with the world’s highest banking profits per capita. Some celebrated RBC’s recent news reporting a record annual profit of $10 billion. For the team at Borrowell, this news confirmed something else—in 2016, we want to see even greater financial disruption. Canadian consumers have suffered from limited choice, higher rates, and opaque fees for far too long.

If you can’t beat them, acquire them. We predict that a Canadian financial institution will acquire at least one Canadian fintech startup. A prominent U.S. example of this is Visa’s 2015 investment in online payments firm Stripe. This investment valued the technology innovator at approximately $5 billion. Another example of this is Spanish bank BBVA’s acquisition of Simple, a data-driven online banking startup for $117 million USD. Acquiring a tech startup isn’t just a way for Canada’s big banks to keep up with the latest innovations. Analysis by consulting firm T. Kearney shows that the return on investment from financial services companies buying technology-focused companies far exceeded the returns from financial services firms acquiring ‘like’ financial services firms.

More critics will try to create fear about financial innovation. There are voices in the industry who stigmatize financial technology. For example, a recent post in the Globe and Mail argued that ‘fintech’ lending could lead to systemic risk because fintech startups are unregulated and don’t have the same safeguards when it comes to risk management as the big banks. In fact, fintech startups like Borrowell take an equally rigorous approach to risk management and security as the banks. The difference is that fintech players use technology to offer services in a more transparent and faster manner. What’s more, critics fail to point out that fintech startups are regulated and governed by many of the same sets of rules as the incumbents. For example, Borrowell is subject to consumer lending rules and has to obey securities laws.

Our COO, Eva Wong, said it best with her quote at a recent conference: “online lending in 2015 is what online dating was 4-5 years ago.”

While the booming financial technology industry has gained a foothold in the popular consciousness, it is still working for general acceptance. At Borrowell, we think creating fear about financial technology players is similar to the fear-mongering created by the infamous Toronto cab driver who recently latched onto a nearby Uber.

Like Uber and other innovations that have made things faster and fairer for consumers, we believe that financial technology is not only here to stay but is poised for massive growth. What will be important will be continuing to regulate and monitor new players, while creating an environment where incumbents and new players can work together to make things better for consumers.